


The 


Western Freight Rate 
_ Advance Case 


SUMMARY 


OF 
GENERAL RAILWAY TESTIMONY 


Presented to the 
INTERSTATE COMMERCE COMMISSION 


THE WEQARY OF THE 
APR 3 1926 
le LLIN 26 - 753 


LIBRARY OF CONGRESS CARD 


WESTERN RAILWAYS’ COMMITTEE ON PUBLIC 
RELATIONS 


Chicago, Illinois 








THE WESTERN FREIGHT RATE 
ADVANCE CASE 


Herewith is presented a condensed summary of the gen- 
eral testimony submitted by the Western railways to the 
Interstate Commerce Commission at Chicago, Illinois, Sep- 
tember 8th to 16th, 1925, in support of their petition for 
a general five per cent increase in their freight revenues. 


THE RAILWAYS’ OPENING STATEMENT 
Statement of R. N. Van Doren 


The Western railways’ case was formally opened on 
September 8th with a brief statement as to the carriers’ 
position made by R. N. Van Doren, vice-president of 
the Chicago & Northwestern Railway Company and chair- 
man of the law committee of the Western lines. Mr. Van 
Doren said in part: ‘‘I thought that it might be advis- 
able, to clarify the issues with which we are here con- 
cerned, if at the outset a very brief statement of the 
railways’ proposed case be presented to the Interstate 
Commerce Commission. 

‘‘It is, we assume, generally understood, that this pro- 
ceeding is a revenue case, based upon the exigent neces- 
sities of the Western railways for increased revenues. ‘To 
the establishment of such necessities and the method by 
which they are to be supplied, we shall mainly direct 
our efforts. 

‘‘The proof will, we believe, abundantly sustain the alle- 
gations of the petition that an eleven per cent increase 
in revenues is necessary to afford these carriers even the 
minimum of a fair return prescribed by the Interstate 
Commerce Commission. It is quite evident that unless 
some substantial relief be afforded, other railroads than 
those now in the hands of receivers will probably be in 
similar financial condition. 

‘‘Our testimony will disclose the low level of freight 
rates in the Western territory—low rates in and of them- 
selves, yet lower still when contrasted with those in other 
territories. Notwithstanding our greatly increased oper- 
ating costs, our freight rates are but 29 per cent higher 
than in 1911. The most rigid economies have been prac- 
ticed consistent with adequate service and such efficiencies 


h 51612 


have been enforced as have made possible the performance 
of this service. In the one matter of increased train loading 
alone, we have produced economies since 1911 which, had 
they not been effected, would in 1924 have increased our 
operating costs nearly half a billion dollars. The public 
has had the benefit of these economies and efficiencies. The 
amount of increased freight revenues we shall ask in this 
case will be but a small percentage of the annual savings 
to the public as the result of these economies. 

‘‘While the proof will establish our need for an eleven 
per cent increase, we shall not at this time ask for the 
full measure of relief to which we are entitled. We shall 
ask, not for an eleven per cent increase in freight revenues, 
but for five per cent. This we are doing for several rea- 
sons. First and foremost is the emergency of our neces- 
sity. We need additional revenue and we need it now. 
We have hoped that by asking for only a minimum we 
might more promptly and with less opposition obtain this 
relief which we must have. Perhaps we have been too 
hopeful. But nevertheless we shall proceed upon the basis 
of such hope in the belief that when our case is made 
the reasonableness and moderation of our demand will 
recelve quite general approval. We are disposed to look 
to the future with optimism and not seek greater relief 
at this time. 

‘‘As to the generat rate structure investigation called 
for under the terms of the Hoch-Smith Resolution, which 
is being considered at this time jointly with our petition 
for increased earnings, we shall cooperate with the Inter- 
state Commerce Commission so far as we are able. We 
shall comply with the order and request of the Com- 
mission for data relating to that investigation to the extent 
to which such data is available or can be secured with 
reasonable effort. This data is being compiled and tabu- 
lated, and will be submitted at the proper time for use 
of the Commission. It is our purpose, furthermore, to in- 
itiate some studies and to submit the results thereof, dem- 
onstrating, as we believe, the absence of any basis at this 
time for any special favor or concession to agriculture. 

‘“Whatever may have been the economic status of the 
agricultural industry at and prior to the time of the 
passage of the Hoch-Smith Resolution—whatever depres- 
sion may have occurred in its financial condition—such 
condition and depression have been substantially, and, we 
shall aim to prove, completely removed, and agriculture 
has been restored to its economic equilibrium. In fact, 


2 


for the Western district as a whole, we maintain that agri- 
culture as an industry and the farming people as a class 
are in better financial condition today, and have been 
for many months, than at any time since the war; and 
that in truth the actual purchasing power of the Western 
farmer is greater than in pre-war days. 

‘Substantially 25 per cent of the ton-mile traffic of 
the carriers in the Western district consists of agricultural 
products and live stock. Upon some of the railways the 
percentage is much higher. With products of agriculture 
forming so large a proportion of the traffic, no plan of 
freight levies can be devised in this district which leaves 
out this large volume of traffic. No plan for advances 
in freight rates can be evolved, with any reasonable assur- 
ance of increased revenues to the needy carriers, which 
does not provide for corresponding increases in rates upon 
agricultural products. 

‘‘A goodly number of the railroads in the Western dis- 
trict are in granger territory. Many of the railroads 
are strictly granger roads. We believe that we are per- 
forming a valuable service in this territory. For that 
service we are entitled, both in law and in morals, to a 
fair return. We could almost hope, under present con- 
ditions, for cooperation with rather than opposition to 
the petition which we have filed.’’ | 


THE PRESENT SITUATION OF THE WESTERN 
RAILWAYS 


Testimony of L. E. Wettling 


Following Mr. Van Doren’s- opening statement, the rail- 
ways’ detailed case was commenced by L. E. Wettling, 
manager of the Statistical Bureau of the Western Lines. 
Mr. Wettling discussed at considerable length the present 
financial and operating conditions of the railways in the 
Western district. His statistics cover Class I railways 


- alone. 


The first general subject which the witness took up 
was the rate of return earned by the railways in the 
various districts since 1921. These figures appear below, 
covering the Class I railways in the Eastern, Southern 
and Western districts and the United States as a whole 
from 1921 to 1924 and for the first six months of 1925. 
Class I switching and terminal companies are included. 


3 


Rate of Return Earned on Property Investment as of 
the Beginning of the Year 


First six 
months 
District 1921 1922 1923 1924 1925 
Eastern Vas. oo. 2.85% 3.54% 4.85% 4.53 % 5.10% 
SOUtHErMA. ie. ea te Zoe 4.33 5.02 HN. 20 5.0D 
Westernes ivo...05. 38.12 3.45 3.96 3.87 od 
United States .....2.91 3.60 4.48 4.33 4.46 


(Note: The figures for the first six months of 1925 are on an 
annual basis. ) 


In 1921, the return earned by the Western roads was 
higher than that earned in either the Eastern or Southern 
district. Since 1921, however, the situation has been re- 
versed. These figures reflect the low relative earnings 
of the Western lines as compared with the railways in 
the Eastern and Southern districts and show, further, 
the effect of the general freight rate reductions made by 
the Interstate Commerce Commission, the reductions be- 
ing materially greater in the West than in the other dis- 
tricts. 

Comparing the Western district with the remainder of 
the United States, it appears that in 1921 the Western 
railways earned 3.12 per cent upon their property invest- 
ment while the railways for the rest of the country as 
a whole earned 2.74 per cent. For subsequent years the 
figures are as follows: 


Rate of Return Earned on Property Investment as of the 
Beginning of, the Year 


19222) Western railways. -2./)4..00 9: einen oe 3.45% 
Other: railwHys le 0 tokyo eae eee 3.71% 
1925.1... Western -TallWways oa. os ae ees ee 3.96% 
Other ‘railways’. 2.) eee pers eee ee ae 4.88% 
1924." Western railways* 2.0.0: ain. \ ce. aa ol eee 3.87% 
Other: railways \iai.)e tes Ook eee nee eae ete 4.67% 


These figures indicate clearly that the Western roads 
are not permitted, because of the relatively low level of 
their freight rates, to earn a rate of return as high as 
that received by the railways in other sections of the 
country. 

In 1921, only one Western road or system earned 6 
per cent or more upon its property investment. In 1922 
only three. roads or systems, in 1923 only seven roads or 
systems and in 1924 only three roads or systems in the 
West earned 6 per cent or over on their investment. 


4 


The following table shows for each year from 1921 to 
1924 the number of Western roads or systems earning 
6 per cent or more, earning from 5 to 6 per cent, from 
4 to 5 per cent, etc., on their property investment as of 
the beginning of the year. 


Number of Western Roads or Systems Falling Within 


Various Earning Classifications 
{ 


Class 1921 1922 1923 1924 
Bepervcent Or Mores: ... os 6.2 1 3 fj 3 
PEOROMPCEC CEN ET. oh. 52m ix cy we 3 3 3 
Bee Oe OL CONG. 45s on 2. kee, ti 6 6 11 
Bree per, Cente sus Piso. ak 3 42 10 9 
meee ty eT? COD ti. fess ied 8 7 9 5 
Ce OTH CONG. 2./ie/e 6 c's cde 2: 6 5 6 8 
Meroe Per ECON ts ¢ Ocrs Wiles Ont 9 5 5 5 
PR SAM ee AGN Ct ee SLR, 2 fi 3 5 
SOPD SOUS Ss SO Bag A Ae ae 48 48 49 49 


These figures show, further, that the Western roads or 
systems earning 5 per cent or over numbered but three 
in 1921, six in 1922, ten in 1923 and six in 1924. The aver- 
age rate of return earned by the roads included in the 
foregoing table was 2.91 per cent in 1921, 3.42 per cent 
in 1922, 3.93 per cent in 1923 and 3.86 per cent in 1924. 

Per mile of line, the property investment of the West- 
ern railways and the major items in their income account 
had increased as follows in 1924 as compared with 1911: 


Taxes had increased 224.93 per cent 
Operating expenses had increased 95.85 per cent 
Operating revenues had increased 175.62 per cent | 
Property investment had increased 25.15 per cent 
Net railway operating income had 

increased only 3.48 per cent 


The present unfortunate financial situation of the West- 
ern carriers is clearly portrayed by the last two figures 
just given, wherein it appears that property investment 
per mile of line had increased more than 25 per cent 
from 1911 to 1924, while net earnings per mile of line 
had increased less than 32 per cent. 

Mr. Wettling next discussed the relative levels of freight 
rates in the different sections of the country, showing that 
freight rates in both the Eastern and Southern districts have 
been increased very much more, relatively, than have West- 
ern freight rates. For the year 1924 the average receipts 


5 


per ton mile in the Eastern district were 76 per cent higher 
than they were in 1911; in the Southern district, 37 per 
cent higher than in 1911, while in the Western district 
they were but 29 per cent higher than in 1911. Comparing 
the first five months of 1925 with the year 1911, it appears 
that Eastern freight rates have increased 75 per cent, 
Southern freight rates 36 per cent and Western, freight 
rates but 26 per cent. | 

On the basis of 1915, the following increases in freight 
rates had occurred in 1924: 


Eastern district 74 per cent 
Southern district 48 per cent i 
Western district 38 per cent 


On the basis of 1917, the following increases in freight 
rates had occurred in 1924: 


Eastern district 69 per cent 
Southern district 49 per cent 
Western district 47 per cent | 


On the basis of 1919, the following increases in freight 
rates had occurred in 1924: 


Eastern district 23 per cent 
Southern district 9 per cent 
Western district 10 per cent 


That these figures are not affected by disproportionate 
changes in the average length of haul in the various dis- 
tricts was shown by the fact that in 1924, as compared 
with 1911, the average haul per ton of freight had in- 
creased 14 per cent in the Hastern district, 16 per cent 
in the Southern district and 18 per cent in the Western 
district. The Western district, showing the lowest per- 
centage of increase in average haul, is theoretically en- 
titled to the highest percentage of increase in the average 
receipts per ton mile, the general theory being that with 
the lengthening of the haul, the average receipts per ton 
mile decrease. 

Despite the fact that Western rates have relatively 
fallen far behind rates in the Eastern district, the West- 
ern carriers have kept pace with the East in the rela- 
tive increase in tons per loaded car. In 1924, the aver- 
age tons per loaded car in the Eastern district showed 
an increase of 22.52 per cent over 1911, while in the 
Western district the corresponding percentage of increase 
was 22.47. 


6 





The increased facilities provided by the Western rail- 
ways for the service of their patrons were next portrayed 
briefly by Mr. Wettling in a statement showing the growth 
in various classes of trackage and in property investment 
which occurred between 1911 and 1924. 


Miles of road (first main track) “had in- 

CCAS BS 4 ek te ree ea iN, Sen tee 11.55 per cent 
Miles of second main track had increased 90.39 per cent 
Miles of third main track had increased 60.60 per cent 
Miles of other main track had increased 66.23 per cent 
Miles of yard track and sidings had in- 


BECHECC Fore oN ide Cor Rah ene ek eo te ee 36.53 per cent 
Miles of all track had increased........ 20.19 per cent 
Aggregate property investment had in- 

OLOASOC Dittman inet te ease aks Cue eae 41.38 per cent 


These figures are striking evidence of the increased facil- 
ities provided by the railways for the people of the West. 

Certain traffic averages and operating statistics of the 
Western roads were next discussed by the witness. Some 
of the more important of these averages are shown below 
for the years 1911 and 1924, together with the percentage 
of increase, 1924 over 1911: 


Per Cent 
Item 1911 1924 Increase 
Freight revenue per freight train 
PUP Ggee rs Shae’ oni Le ee URN cis Ganens $ 3.16 $ 6.69 111.71 
Passenger revenue per passenger 
PTAC RLS CAs etree eters Fe oh $ a2 ty 1.60 31.15 
Passenger train service revenue 
per passenger train mile........$ 1.48 § 2:13 43.92 
Breightscars per ‘trains. ace. ocr 28.74 40.60 41.27 
Revenue tons per train........... 336.10 553.54 64.70 
Passengers’ per train..a.:..:....5-% 57.41 Bet ee L 
Passenger train service cars per 
SEHLIR ANT OLN, seg hae ial aos eee LAY he 5.80 6.43 10.86 
Operating expenses per transporta- 
tion service train mile..........$ 1.63 §$ 3.44 111.04 
Taxes per transportation service 
Ca iite LOM otis.» He ee acds eee $ .09 §$ OU eab.oo 
All expenses per transportation 
Berviceqirain “Mile. ee oe ee, $ 1.74 §$ 3.05, 120/12 
Wages per transportation service 
FERATOD NOs ets es Sees a eee 98 § 2.16 120.41 
Transportation service car miles 
Pete COTIPLOVEE ML: ic... base tah gre ort da. ore 12,870 17,568 36.50 
Transportation service train miles 
Pete CMPLOY EC Gir cls Pete snes wae 737.21 (37.79 .08 
d Decrease. 


The significant figures in the foregoing summary are: 
From 1911 to 1924 freight revenue per freight train mile 
increased 111.71 per cent; passenger train service revenue 
per passenger train mile increased 438.92 per cent; while 
per transportation service train mile, both freight and 
passenger, operating expenses increased 111.04 per cent; 
taxes increased 233.33 per cent, and all expenses increased 
120.12 per cent, a much higher percentage of increase than 
occurred in revenues. 

The foregoing figures show a saving to the public in 
1924, due to efficiencies in operation made since 1911, of 
more than half a billion dollars due to one item alone. 
Revenue tons per train were 553.54 in 1924, and 336.10 
in 1911. If the Western railways had been loading their 
trains in 1924 only to the amount of the 1911 loading, 
it would have required 404,736,900 train’ miles to handle 
the. 1924 traffic, instead of the 245,744,898 train miles 
actually run in 1924. This means that increased train 
loading in 1924 resulted in a saving of 158,992,000 train 
miles, which at $3.83 per train mile, means a money sav- 
ing of $609,000,000. Discounting this total by as much 
as 25 per cent on account of possible fuel and main- 
tenance savings still leaves a saving in operating expenses 
of more than $450,000,000. Five per cent of the 1924 
freight revenue of the Western railways amounts approxi- 
mately, to $82,000,000, so the annual savings to the pub- 
lic from the one item of heavier train loading alone are 
more than five times the amount of the rate increases 
now requested. 

Mr. Wettling next compared the operating revenues 
and expenses of the Western roads in 1924 and 1916. Com- 
paring 1924 with 1916, Western railway operating rev- 
enues have increased 53 per cent. Operating expenses 
have increased 81 per cent, and taxes have increased 102 
per cent, both materially higher than the percentage of 
increase in revenues. As a result, the net railway oper- 
ating income decreased 19 per cent. 

Putting the foregoing figures on an average per mile 
of road the following situation appears: 


Increase, 

1924 over 1916 . 

Account 1916 1924 Amount Per Cent 

Operating revenues ..$11,240.00 $16,700.00 $5,460.00 48.58 

Operating expenses .. 7,082.00 12,490.00 5,408.00 76.36 

PASES yee POR peor 556.00 1,093.00 537.00 96.58 
Net railway operating 

INCOM. Gh Ade eee 3,530.00 2,795.00 Dec. 735.00 Dec. 20.82 


8 


Per thousand train miles the figures are as follows: 


Increase, 
1924 over 1916 

Account 1916 1924 Amount Per Cent 
Operating revenues .. $2,875.00 $4,595.00 $1,720.00 59.82 
Operating expenses .. 1,811.00 3,436.00 1,625.00 89.73 
OME Ears Sty sk cs 142.00 301.00 159.00 111.97 
Net railway operating 

canis aie ys 903.00 769.00 Dec. 134.00 Dec. 14.84 


The following figures present the financial situation in 
1916 and in 1924 per thousand car miles: 


Increase, 
1924 over 1916 

Account 1916 1924 Amount Per Cent 
Operating revenues .. $141.50 $212.04 $70.54 49.85 
Operating expenses .. 89.15 158.58 69.438 77.88 
BACON Coord Sl ec kes w eee 7.00 13.88 6.85 97.86 
Net railway operating 

BRIG Lie. os oo Ans cde 44,43 35.49 Dec. 8.94 Dec. 20.12 


Property investment of the Western railways on De- 
ecember 31, 1924, was $9,900,773,458. In 1916, at the end 
of the calendar year, the investment was $8,159,292,775. 
There was thus an increase from 1916 to 1924 of $1,741, 
480,683. The net railway operating income in 1924 was 
$371,504,260. In 1916 it was $456,049,664. 1924 thus 
shows a decrease below the 1916 net earnings amounting 
to $84,545,404. The rate of return on property invest- 
ment was only 3.75 per cent in 1924 as compared with a 
return of 5.59 per cent in 1916. 

The 1924 earnings amounted to a 53 per cent return 
on only $6,460,943,452 of property investment or on less 
than two-thirds of the money invested in the Western 
railways. Had the 1924 net been increased by 5 per 
cent of the total freight revenues in that year, the result- 
ing net railway operating income even then would have 
been short of the earnings in 1916, notwithstanding the 
very large increase in investment and would have amounted 
to a return of 5.56 per cent on the 1916 investment, con- 
trasted with the 5.59 per cent actually earned in 1916. 
Had the 1924 net railway operating income been increased 
by 5 per cent of the total freight revenues, this increased 
net would have produced a fair return on only $7,890,- 
910,261 of property investment, leaving $2,009,863,000 of 
property investment receiving no return whatever. 

The losses in freight revenues’ which the Western rail- 
ways have suffered since 1920 were next discussed by Mr. 
Wettling. In August, 1920, freight rates in Western ter- 


9 


ritory were increased, on the average, approximately 32 
per cent, this increase being necessary to establish a rate 
level calculated to yield the Western railways a fair re- 
turn. Immediately after this increase, however, down- 
ward readjustments were effected which have continued 
to the present time, augmented materially by the general 
freight rate reductions made by the Interstate Commerce 
Commission in 1922. On the basis of the increased rates 
established in August, 1920, it is estimated that the aver- 
age receipts per ton-mile of the Western railways under 
those rates were 1.449 cents. In 1921 this figure had 
been reduced to 1.422 cents; in 1922 to 1.292 cents; in 
1923 to 1.228 cents and in 1924 to 1.209 cents. 

These downward readjustments and the general rate 
reductions have resulted in the following losses in freight 
revenues to the Western lines below the earnings which 
they would have had if the rates established in August, 
’ 1920, had remained in effect: 


Losses in Revenue Due to Freight Rate Reductions Below 
Rate Level Fixed in August, 1920 


Percentage 
Loss in of reduction in 
Year Freight Revenue’ gross freight revenues 
LOZ ica rs Tee nee $ 29,337,687 1.85 
3 papa IMS AR IRAE, chy 186,061,493 ; 10.76 
POR ar sata caar ns 302,845,567 15.12 
AD 92 Sis ARR ae Ay oa a 326,598,358 16.48 


Total 4 Years... .$844,843,105 


It appears that in the last four years Western shippers 
have been saved an aggregate of approximately 
$845,000,000 due to reductions in freight rates below the 
level established by the Interstate Commerce Commission 
in August, 1920, as calculated to yield the railways a 
fair return. Further, it appears that present Western 
freight rates are more than 16 per cent below this fair 
return level. 

Mr. Wettling next presented statistics showing the rela- 
tionship of the freight revenues on agricultural products 
of Class I roads in the United States to the net value of 
those products at the farm, plus the freight to the point 
of consumption. The statement showed, contrasted with 
1921, an increase of $956,000,000 (excluding crops fed to 
animals) in the net farm value of agricultural products 
in 1922, an increase of $2,128,000,000 in this value in 1923 


10 


and an increase of $2,188,000,000 in 1924. The percentages 
of increase in the net farm value of agricultural products 
over 1921 are 9.36 per cent in 1922; 20.83 per cent in 
1923, and 21.42 per cent in 1924. 

The total freight revenues received by the railroads 
of the United States from the transportation of farm 
products were $887,701,000 in 1922; $832,604,000 in 1923, 
and $866,157,000 in 1924. The ratio of these freight 
charges to the net farm value of agricultural products, 
plus the freight to the point of consumption, was 7.386 per 
cent in 1922; 6.382 per cent in 1923 and’6.53 per cent in 
1924. 

The ratio of the increased net farm value of agricul- 
tural products for 1922 over 1921 to the freight charges 
thereon in 1922 was 107.7 per cent. The ratio of the 
increased net farm value for 1923 over 1921 to the agri- 
cultural freight charges in 1923 was 255.6 per cent. The 
ratio of increased net value of farm products for 1924 
over 1921 to the freight charges thereon in 1924 was 
252.6 per cent. In other words, the increase in the net 
farm value of agricultural products in 1924 as compared 
with 1921 was more than two and one-half times as great 
as the total freight charges paid on these products in 1924. 

Mr. Wettling’s final table presented a comparison of 
certain financial and operating statistics for the Western 
railways, comparing the calendar year 1924 with the 
average results for the test period (the three years ended 
June 30, 1917). Comparing 1924 with the test period 
average the following facts appear: 


Gross Tevenues. inCreased....vecscccceeasiocecs 63.37 per cent 
Operating expenses, including rentals, increased. 91.83 per cent 
PL OSMLIMeE GR SEM May Use oie ab alhls cela e ate Sieve dae ae eee 104.23 per cent 
Net railway operating income decreased........ 7.23 per cent 
Transportation train miles decreased.......... 1.39 per cent 
Transportation car miles increased............. 17.69. per cent 
PROUEAL CA OANCT CA SEU Cd ag isha crecdicl bib viel see Gabe bl as 21.55 per cent 


Mr. Wettling next quoted the following statement made 
by the Interstate Commerce Commission’s Bureau of Sta- 
tistics: ‘“‘If the man-hour cost is assumed to have increased 
119 per cent, the material prices 74.5 per cent and if de- 
preciation, retirements, insurance and pensions are assumed 
to have remained unaffected by these influences, the total 
operating expense of $4,994,000,000 (including equipment 
and joint facility rents) stated in terms of test period 
dollars is reduced to $2,641,000,000 and the weighted aver- 
age increase in the railroads’ cost of living would be 89 


11 


per cent for the calendar year 1923 as compared with the 
test period.”’ 

On the basis of this statement the unit cost per net 
ton-mile, excluding taxes, was calculated for the various 
districts for 1923, thus putting the 1923 figures on the 
basis of the test period unit prices and wages. These 
equated figures, eliminating increases due to higher price 
and wage levels, show that on the test period cost bases 
the unit cost per net ton-mile in 1923, as compared with 
the test period, had been reduced 1.15 per cent in the 
Eastern district, 8.88 per cent in the Southern district, 
and 11.16 per cent in the Western district. 

Statistics were also presented showing for the various 
districts the changes which have occurred in net railway 
operating income, comparing 1923 first with the test period 
average and then with 1916. 1923 compared with the aver- 
age for the test period shows the following changes in net 
railway operating income: 


Increase of $65,000,000 in the Eastern district. 
Increase of $39,000,000 in the Southern district. 
Decrease of $34,000,000 in the Western district. 


1923 compared with 1916 shows the following changes 
in net railway operating income: 


Increase of $ 1,000,000 in the Eastern district. 
Increase of $10,000,000 in the Southern district. 
Decrease of $89,000,000 in the Western district. 


SITUATION OF THE CHICAGO & NORTHWESTERN 
Testimony of Fred W. Sargent 


The conditions confronting the Western railways as 
typified by the situation of the Chicago & North Western 
Railway Company were presented by Fred W. Sargent, 
president of that company. The Chicago and North West- 
ern Railway Company has in every year since the end 
of federal control furnished its service to the public at 
a return of less than 4 per cent upon its investment and 
the experience of the North Western is typical of the 
Western railways. 

This situation is caused by the ereat increases which 
have occurred in the cost of railway operation, in fuel, 
in wages, in taxes, and in practically every other item ; 
by the fact that western railway rates have been kept 


12 


far below the rising tide of their costs; and by the fact 
that constant new capital expenditures must be made to 
meet the growing demands of agriculture and industry 
and to furnish the people of the West with prompt, ade- 
quate and efficient transportation service. 

The inereased cost of railway operation is typified by 
the following figures showing for the years 1913 and 1924 
various items of the North Western’s expenditures together 
with the percentage of increase which has occurred: 


Per Cent 
of increase 

Item 1913 1924 1924 over 1913 
Hmployes’ compen- 

sation per hour..$ 0.2577 $ 0.6149 138.61 
Employes’ compen- 

sation per annum 758.92 1,631.08 114.92 
Operating expenses 58,252,780.00 120,536.645.00 106.92 
Di) ee ee 3,597,160.00 9,348,842.00 159.90 
Average cost oak 

Gross (lest oy 2 ik lo hos 89.04 
Average cost per 

LODP EAE Se toe 30.13 44.32 47.10 
Average cost per 

COUT eles we oes 2.03 2.70 33.00 


The loss in freight revenues to the Chicago & North 
Western in 1923 and 1924 caused by the general freight 
rate reductions which have been made is shown below in 
detail : 


1923 Loss Classified 


Total Revenue  lLossin Revenue 


Commodity For 1923 For 1923 
Grain and Grain Products......$ 138,994,718.87 ~ §$ 2,516,944.39 
Other Products of Agriculture... 5LT251710 599,987.51 

Total Products of Agriculture. 19,167,286.97 4,116,931.90 
TES LOCI dcanteharcice Gv), We oee. dete i 9,437,013.42 1,226,811.75 
Other Products of Animals..... 4,683,648.67 515,201.39 

Total Products of Animals.... 14,120,662.09  4,748.018.14 
Deen UME Wee Cee Ae eae fre ae ae UE er 6,827,103.19 1,550,783.25 
Other Products of Mines..... . 18,866,152.88 2,075: 216318 

Total Products of Mines...... 25,693,256.07 3,626,059.98 
Total Products of Forests...... 8,503,058.87 935,336.49 
Total Mfrs. & Miscellaneous..... 32,567 ,226.60 3,082,394.99 

Total All Carload Freight.... 100,051,440.60 14,002,736.50 
PRODALIME Glee erelont.s 555 dele ees 16,424,121.98 1,806,653.42 

‘Male We OAS yh als Ml 0a Oe) igang nem ges 116,475,562.58 15,809,389.92 
Intrastate estimated ........... 250,000.00 

Otel yearn O28 macys weal. $116,475,562.58 $ 16,059,389.92 


13 


1924 Loss Classified 


Total Revenue 


Commodity For 1924 
Grain and Grain Products....... $ 12,649,720.46 
Oiher Products of Agriculture... 4,787,130.33 

Total Products of Agriculture. 17,436,850.79 
TAVe GS GC Skee ore Laer oe 10,031,496.98 
Other Products of Animals...... 4,837,308.43 

Total Products of Animals.... 14,868,805.41 
Trom Or eniah Gree ain: ceed te deus pate 5,008,076.71 
Other Products of Mines........ 16,319,946.27 

Total Products of Mines......  21,328,022.98 
Total Products of Forests...... 7,956,952.91 
Total Mfrs. & Miscellaneous.... 29,512,507.68 

Total All Carload Freight..... 91,103,139.77 
TotaliGh CL vEreightain cos. 15,526,560.99 

Total) Cand (Cie ticks 106,629, 700.76 
Intrastate estimated ........... 

Total Very 1O24 oes, as cobs. $106,629,700.76 


Loss in Revenue 
For 1924 


$ 3,102,502.59 
554,881.56 
3,657,384.15 
1,304,094.61 
532,103.93 
1,836,198.54 
1,133,975.13 
1,795,194.09 
2,929,169.22 
875,264.82 
3,246,375.84 

~ 12.544,392.57 
1,707,921.71 


14,252,314.28 
225,000.00 


$ 14,477,314.28 





The Western railways have been furnishing their patrons 
with the best transportation service they have ever known. 
The activities of the management of the Chicago & North 
Western Railway Company toward efficient and economi- 


cal operation are reflected in part in the 


Economies and Efficiency 


following data: 


Ratio 

Increased Efficiency 1913 1924 to 1913 
Tractive Power of Locomo- 

tives (Aggregate) ...... 44,920,410 73,054,200 162.63% 


Tractive Power of Locomo- 
tives (Per Locomotive). . 26,086 
Carrying Capacity Freight 


34,557 182.47%, 


41.2 117.71% 


19.7 107.07% 
28.5 121.138% 


_ 444 126.50% 
1,295 181.87% 


Cars (Aggregate) Tons.. 2,114,945 2,838,879 134.23% 
Carrying Capacity Freight 

Oars) (Per: Car yoy, im aes 35.0 
Revenue Tons per Loaded 

COAT fi varnvicee fait ar tlecw nei a. senate 18.4 
Car Miles per Car per Day. 19.4 
Tons per Train (Net), Rev- 

enne Bréight: 3) ees eas 351 
Tons per Train (Gross).... 982 
Locomotive Miles per En- 

Pine BLUES eit yc nee 2oi2t6 


MonthiOt duly, O20 a ee 
Fuel Consumed per 1,000 


69 967 300.58% 
165,298 710.13% 


CE MEO ETD St Lae ie aaa 255 178 69.80% 
Tons Carried of Revenue 

D Tha 4 EP UMD aC Cle 44,839,071 52,158,316 116.32% 
Ton Miles of Revenue 

FOrOHRn Cite, Se sieed tos: ean ee 6,282,916,222 8,290,312,710 181.95% 


14 


Despite the records which the Western railways have 
made in the quality of their transportation service, the 
roads are not being permitted to earn a fair return from 
this service. This condition has compelled the postpone- 
ment of needed replacements to the railway property, 
has prevented the undertaking of additions and exten- 
sions to the railway plant, which would mean much to 
the people of the West, has necessitated reductions in the 
operating forces beyond the point of reasonable economy, 
and has deprived the railway stockholders of reasonable 
dividends upon their investments. 

All of these unfortunate conditions have a direct and 
depressing relation to the prosperity of the communities 
served by the Western railways and of the citizens of 
these communities, and, further, to the economic welfare 
of the countless persons, industries and mercantile activ- 
ities which depend upon the railways for part or all of 
their income or which receive the business of the rail- 
ways or of their employees. 

A reasonable increase in freight rates will act in a num- 
ber of ways to correct this situation. Such an increase 
will permit the railways to stabilize the employment of 
their men and to expand the forces employed in main- 
tenance work; it will allow the roads to purchase the 
materials and the equipment necessary to operate and 
maintain the properties if the present standard of service 
is to be continued; it will enable the carriers to partici- 
pate properly in community enterprises for improvement 
and expansion; and it will give fair and reasonable divi- 
dends to the investors in railway stocks, including the 
banks, the colleges, the insurance companies and the vari- 
ous other classes of railway stockholders whose welfare 
is the welfare of the people in general. All this will in- 
erease the buying power of the roads, of their employees, 
of their stockholders, and of all those dependent upon 
them, thereby producing greater prosperity in general, 
and enlarging the home market for American production, 
both agricultural and industrial. 

To cite a specific illustration, in the fiscal year ended 
June 30, 1925, 193,000,000 bushels of wheat were exported 
from this country, while in the same year the estimated 
American under-consumption of wheat was 206,000,000 
bushels. This home under-consumption could be mate- 
rially reduced, with accompanying financial advantage to 
the American farmers, if the general purchasing power 
ef our working population was raised. The per capita 


15 


wheat consumption in this country in the fiscal year 
1925 was but 4.15 bushels, while in fourteen of the fifteen 
years immediately preceding this country’s entrance into 
the World War, the average consumption per individual 
was well over five bushels a year, running, indeed, as 
high as 6.04 bushels in one year. Present wheat consump- 
tion per individual can be raised to the pre-war level, and 
above, by an increase in purchasing power. A reasonable 
increase in Western freight rates will immediately increase 
the purchasing power of the Western railways, of their 
employees, of their stockholders, and of all those depend- 
ent upon them, thereby producing greater prosperity in 
general, and enlarging the home market for American agri- 
cultural production. 

Finally, a reasonable increase in freight rates will guar- 
antee for the West the maintenance of an adequate system 
of transportation, a fundamental necessity for individual 
and national prosperity and welfare. As it is, the con- 
tinuation of the present adequate transportation service 
in the West is seriously threatened by the present low 
level of Western railway earnings, which, in turn, are the 
result of the depressed level of Western freight rates. 

It is evident, therefore, that every factor which may 
be considered shows at the same time the necessity of 
and the justification for an increase in the earnings of 
the Western railways. 


SITUATION OF THE NORTHERN PACIFIC 
Testimony of Charles Donnelly 


Charles Donnelly, president of the Northern Pacific 
Railway Company, testified as to the conditions confronting 
his line. In no year since the passage of the Transpor- 
tation Act has the Northern Pacific earned a fair return. 

At the end of the year 1924 the company’s investment 
in road and equipment, materials and supplies and work- 
ing capital amounted to $588,000,000. Upon this in- 
vestment it had a return for the year 1924 of 3.37%. 
Its return on investment for the four preceding years was 
1.44% in 1920, 1.93% in 1921, 3.47% in 1922 and 2.93% 
in 1923. 

Argument is unnecessary to prove that this return is 
inadequate. The explanation of this inadequacy is not 
to be found in any shortcomings of the property consid- 


16 


ered as a transportation agency, or in any extravagance 
of outlay in connection with its operation. The physical 
condition of the property as regards both roadway and 
equipment is good. It has been well, though in no sense 
extravagantly maintained. It is capable of rendering, and 
is actually rendering, efficient service at unit operating 
costs which will bear comparison with those prevailing 
anywhere. The single explanation why the return is inade- 
quate is that freight rates are too low. 


In the year 1924 the freight rate level of the Northern 
Pacific as measured by the average receipts per ton mile, 
-had increased approximately 33 per cent over 1913. With 
this 33 per cent increase in freight rates, we have had 
to face increases in our expenses of a vastly greater 
amount. Our taxes which in 1913 were $4,000,000 were 
$8,500,000 in 1924. The wages which we paid to employees 
have increased from 26 per cent in some instances to 193 
per cent in others. The cost of locomotives has increased 
134 per cent; of coal, 46 per cent; of rails, 44 per cent; 
of locomotive tires from 75 to 99 per cent; of car axles, 
100 per cent; and so on down the entire list. 


In connection with this increase in taxes and expenses 
I wish to draw attention to the very great decline in our 
passenger business, a situation which I do not think is 
going to improve. The short haul passenger business is 
more and more going to the bus and private automobile, 
and, sp far as I can see, there is little likelihood of its 
ever being recovered by the rail passenger carriers as 
such. 

In 1919 we had passenger revenues amounting to 
$20,000,000. In 1924 that had shrunk to $13,000,000. As 
far back as 1914 we carried 9,336,000 passengers. In 1924 
‘we carried 3,607,000 passengers. 


Our average haul per passenger (this being the best 
index of the extent to which we are losing the short haul 
business) has risen from 67 miles in 1914 to 114 miles 
in 1924. 


If we had been able in connection with the great loss 
of passenger business, to make a corresponding reduction 
in passenger train mileage, it would not have been so bad. 
However, the character of passenger service is not a func- 
tion of operation as to which the management has an ade- 
quately free hand. We cannot, for example, in the state 
of Minnesota, take off a passenger train without getting 
permission of the regulating authorities to do so. The 


17 


obligation to render the service is there. It cannot be 
escaped. 

In consequence, whereas in 1914 we made 11,230,000 pas- 
senger train miles, we were able in 1924 to reduce that 
only to 9,602,000 and that figure has remained practically 
constant ever since 1916. 


SITUATION OF THE MINNEAPOLIS & ST. LOUIS 
Testimony of W. H. Bremner 


The conditions confronting the Minneapolis & St. 
Louis Railroad were presented to the Interstate Commerce 
Commission by W. H. Bremner, receiver of that com- 
pany. Had it not been for the heavy reductions in freight 
rates made by the Interstate Commerce Commission since 
1920, the Minneapolis & St. Louis Railroad would not 
now be in the hands of the Court, testified Mr. Bremner. 

Average freight charges on the Minneapolis & St. Louis 
Railroad in 1924 were only one-third greater than in 
1915, an increase which is totally inadequate when com- 
pared with the increase in the prices of materials and sup- 
plies, in taxes, and in the cost of labor. 

White oak ties, which in 1915 cost 56 cents each, today 
command a price of $1.22 each, an increase of approxi- 
mately 116 per cent. Iowa coal, which in 1915 cost $1.89 
per ton is today costing us $3.60 per ton, an increase of 
approximately 90 per cent. Bar iron, which in 1915 cost 
$1.15 per hundred pounds, cost $2.15 in July, 1925, an 
increase of 87 per cent. 

These illustrations might be continued almost indefi- 
nitely. Everything which a railroad buys has increased 
in cost in a much greater degree than the increase in the 
rates at which transportation is sold. 

Our total payroll in 1924 had increased 119 per cent 
over 1915, while taxes in 1924 showed an increase of 66 
per cent. To offset all these huge increases in prices, wages 
and taxes, we have but a 33 per cent increase in freight 
rates. 

In the year 1915, the Minneapolis & St. Louis Rail- 
road earned a net railway operating income of $2,588,000, 
and in 1916, $2,912,000, or approximately 4.8 per cent on 
its investment. In 1923 it earned only $825,000, or 1.3 
per cent on its investment, while in 1924 it incurred a 


18 


deficit of $960,000. Had freight rates in 1924 been the 
same as in 1921, earnings in 1924 would have been 
$1,297,000. 

The Minneapolis & St. Louis is now generally looked 
upon, financially, as one of the weaker roads of the North- 
west. However, only a comparatively short time ago, our 
stock was selling above par. It will be seen from the fore- 
going figures that prior to the great changes in the rela- 
tion between the rates which the railroads were permitted 
to charge for their services and the cost of the various 
units necessary to be used in the furnishing of trans- 
portation, the Minneapolis & St. Louis was in no imme- 
diate danger of being forced to the wall. 

Unless the Minneapolis & St. Louis is allowed sufficient 
income to permit it to be properly equipped and to oper- 
ate in an efficient manner, a large industrial population, 
as well as a large agricultural population, will be seri- 
ously inconvenienced. The only method by which there 
may be secured the additional revenue needed, not alone 
by the Minneapolis & St. Louis, but by all the roads of 
the Northwest, is by an increase in freight rates. I do 
not look for any sudden increase in the amount of traffic. 
The Northwest is improving in a business way, but de- 
velopment is gradual and will not be sufficient for many 
years, if ever, to permit the railroads to earn a fair return 
on the present level of freight rates. The stockholders, 
bondholders and creditors of the Minneapolis & St. Louis 
are entitled to consideration and should not be compelled 
longer to devote their money to the service of the public 
without any compensation whatsoever. 


INCREASING ADEQUACY OF TRANSPORTATION 
SERVICE AND IMPROVEMENTS IN_ EFFI- 
CIENCY AND ECONOMY OF OPERATION 


Testimony of R. H. Aishton 


The increasing adequacy of transportation and the re- 
markable improvement in the efficiency and economy of 
operation which have been made in recent years were 
presented in detail by R. H. Aishton, president of the 
American Railway Association. Mr. Aishton showed that 
in the past three years capital expenditures of the Class I 
railways of the United States had amounted to $1,420,- 


19 


841,252 for new equipment and $942,324,238 for improve- 
ments and additions to roadway and structures, a grand 
total of $2,363,165,490. These capital expenditures have 
probably been the principal factors in the increase in the 
adequacy of transportation during the past few years. 

The tangible results of these large expenditures of capi- 
tal are shown by the fact that in the past three years 2,760 
miles of new track have been constructed in the United 
States, while from January 1, 1922, to August 1, 1925, 
8,728 new locomotives and 534,508 new freight cars were 
put in service on the railroads of the country. 

During the first 33 weeks of this year the railways have 
handled the largest'number of cars loaded with freight 
ever handled in the same period of time. Despite these 
record-breaking carloadings, with the figures for several 
weeks past showing more than one million cars loaded 
each week, there has been at all times a surplus of cars 
in good order and ready for service in excess of 200,000, 
and a surplus of locomotives in good order in excess of 
4,200. 

With reference to the increased efficiency and economy 
of operation which has been produced in recent years, 
Mr. Aishton presented a number of interesting statistical 
tables and charts. His first table dealt with the economies 
which have been made in road fuel consumption in both 
freight and passenger service. In 1920, for the United 
States as a whole, fuel consumption per one thousand 
gross ton miles in the freight service was 197 pounds. In 
1924 this had been’ reduced to 170 pounds. This means 
that for the entire country there was a saving in the freight 
road fuel bill of $39,022,000 due solely to increased effi- 
ciency in the use of fuel. This figure is based both on 
the 1924 freight traffic and on the 1924 average fuel cost 
per ton. 

In the Western district alone, the fuel consumption per 
one thousand gross ton miles in the freight service has been 
reduced from 198 pounds in 1920 to 168 pounds in 1924, 
resulting in a saving in 1924 as compared with 1920 of 
$17,752,000 due to increased efficiency in freight fuel con- 
sumption. 

The passenger service presents the same situation. For 
the United States as a whole, the fuel consumption per 
passenger train car mile in 1920 was 18.8 pounds. In 1924 
this figure had been reduced to 17.0 pounds. This reduc- 
tion resulted in a saving of $9,905,000, caused by increased 
efficiency in the use of fuel in the passenger service. 


20 


For the Western district alone the fuel consumption 
per passenger train car mile has been reduced from 17.4 
pounds in 1920, to 15.8 pounds in 1924 with a consequent 
saving of $3,899,000 due to increased efficiency in fuel use 
in the passenger service. 


This increase in the efficiency of fuel utilization has 
largely been the result of capital expenditures for im- 
proved devices on locomotives, of a very active campaign 
on the part of the railroads and their committees in the 
American Railway Association, and of the active and in- 
telligent cooperation on the part of the officers and em- 
ployees engaged in the handling of fuel. 


Similar increases in the efficiency of operation are shown 
in the figures covering loss and damage payments and 
payments made on account of injuries to persons. For 
the United States as a whole the figures for 1920 and 
1924, together with the amount and percentage of reduc- 
tion comparing 1924 with 1920, are shown below: 


Loss and Damage Payments and Payments for’ Injuries 
to Persons—Class I Railways United States 


Decrease, 
1924 under 1920 
Item 1920 1924 Amount Per cent 

LOSS & DAMAGE 
Damage to 

property .. $ 10,048,734 $ 5,351,536 $ 4,697,198 46.7 
Damage to 

live stock..a 7,168,579 3,199,948 3,968,631 55.4 
Loss and dam- 

age, freight. 0119,883,127 c41,251,243 78,581,884 65.6 


Loss and dam- 
age, baggage 810,282 371,256 439,026 54.2 


Total loss and 
damage .... 0$137,860,722 $50,173,988 $87,686,739 63.6 


Injuries to persons $ 56,237,476 $39,533,860 $16,703,616 29.7 


a@ On right of way. 


b Includes approximately $15,000,000 of Federal lap over items 
applicable to prior periods. 


ce Includes $6,905,901—the approximate amount of additional 
loss and damage freight expenditures charged to insurance ac- 
count. 


ot 


For the Western district alone the figures are as follows: 


Decrease, 
1924 under 1920 
Item 1920 1924 Amount Per cent 
LOSS & DAMAGE i, 
Damage to 
property ... $ 3,722,505 $ 1,711,803 $ 2,010,702 54.0 


Damage to 

live stock ..a 3,887,892 1,786,256 2,101,636 54.1 
Loss and dam- 

age, freight 47,106,714 15,228,196 31,878,518 67.7. 
Loss and dam- 

age, baggage 242,621 75,662 ~ 166,959 68.8 


Total loss and 
damage .... $54,959,732 $18,801,917 $36,157,815 65.8 


Injuries to persons $24,284,203 $15,782,260 $ 8,501,943 35.0 


For the United States as a whole, the number of cars 
in the average freight train has been increased from 
36.6 in 1920 to 41.7 in 1924. Net tons per train have 
been raised from 708 in 1920 to 715 in 1924, average freight 
train speed has been increased from 10.3 miles per hour 
to 11.5 miles per hour and the freight car miles per 
freight car day have been raised from 25.1 to 26.9. 

For the Western district alone, the number of freight 
ears per freight train has been increased from 34.8 in 
1920 to 40.5 in 1924, net tons per train have been increased 
from 610 to 639, average freight train speed has been 
raised from 11.1 miles per hour to 12.1 miles per hour 
and freight car miles per freight car day have been in- 
creased from 28.1 to 28.9. 


THE RAILWAYS’ DETAILED PETITION 
Testimony of C. E. Spens 


Specific details of the carriers’ formal petition were pre- 
sented to the Interstate Commerce Commission by C. E. 
Spens, vice-president of the Chicago, Burlington & Quincy 
Railroad, and chairman of the traffic committee of the 
Western lines. 

The Transportation Act of 1920 recognizes and em- 
phasizes the constitutional guarantees of fair return on 


a On right of way. 
22 


property devoted to public uses, delegates authority to 
the Interstate Commerce Commission to determine the 
figures that in its judgment will constitute an annual 
fair return upon the value of railway property, and re- 
quires the Interstate Commerce Commission to so adjust 
the level of railway rates that the railways will earn as 
nearly as possible an annual fair return. 

For the two years ending March 1, 1922, the annual fair 
rate of return was determined by the Interstate Commerce 
Commission as 6 per cent. Subsequently this fair return 
has been fixed by the Commission at 5% per cent annually. 
In no year. however, since the passage of the Transporta- 
tion Act have the Western railways been permitted to 
earn upon their properties that percentage of annual re- 
turn specified by the Interstate Commerce Commission 

as a fair return. 

The carriers in the Western district, however, have been 
very reluctant to apply to the Interstate Commerce Com- 
mission and to the state commissions for relief, and have 
patiently awaited the fulfillment of the belief expressed by 
the Interstate Commerce Commission that under efficient 
and economical management and the anticipated growth of 
traffic, the shortage in earnings might be overcome. This 
result has failed to materialize and the carriers, therefore, 
have concluded that in the interest of the public at large, 
in the interest of continuous and adequate service and in 
the interest of the owners of the properties, this applica- 
tion for some relief has become obligatory. 

While under the law the carriers are justified in asking 
an increase that will yield them the fair return to which 
they are entitled, while the duty of the Commission is to 
adjust the rate level to produce this fair return as near 
as may be, and while the formal application of the West- 
ern railways now on file with the Commission contemplates 
a. readjustment that will produce the fair return, the car- 
riers have since decided to modify their original petition. 
Instead of asking an increase of approximately 11 per 
cent in their present freight revenues, they do hereby 
amend that petition by suggesting a very modest increase 
of approximately 5 per cent. The situation as to the 
Western railways as a whole has become so acute that in 
their judgment an emergency exists, and relief should be 
forthcoming with the least possible delay. Furthermore, 
the carriers do not suggest an advance that might pos- 
sibly in any instance affect the free movement of any 
traffic, although it is their judgment, based on experi- 


23 


ences connected with advances in the past, that even an 
11 per cent increase would not have this result. 

The greater advance would, however, undoubtedly pro- 
voke greater opposition, with resultant ereater delay in the 
decision by the Interstate Commerce Commission, while 
the lesser advance, we believe, cannot invite legitimate 
criticism and should lead to a ‘speedy adjustment. It is 
the hope of the railways that an early grant of this mod- 
est request, together with favorable consideration in some 
individual readjustments now pending, coupled with the 
expectation that there may yet be some expansion of traf- 
fic, will obviate the necessity for any ftirther general in- 
creases at this time. 

Our specific proposal is that there shall be an increase 
of approximately 5 per cent in freight revenues to be 
accomplished in the following manner: 

A horizontal increase of 5 per cent in all existing 
freight rates except as follows: 

Rates on grain, grain products, flaxseed and other seeds 
taking flax or grain rates to the followimg markets: 
Kansas City, St. Joseph, Atchison, Leavenworth, Nebraska 
City, Omaha, South Omaha, Council Bluffs, Sioux City, 
St. Paul, Minneapolis, Duluth and West Superior to be 
advanced 1 cent per hundred pounds. 

Proportional rates in effect on these commodities be- 
tween these markets and from these markets to Chicago, 
Peoria, St. Louis, East St. Louis and points taking the 
same rates, also to Mississippi Valley and southwestern 
destinations and to Gulf Ports and Rio Grande crossings 
for export to be advanced 1 cent per hundred pounds. 

Intrastate rates and all other rates on these commodities 
to be advanced 1 cent per hundred pounds excepting that 
through rates based on a combination of local and propor- 
tional rates; also through rates from points west of the 
Missouri River and from Oklahoma to Mississippi Valley 
and southwestern destinations and to Gulf Ports and Rio 
Grande crossings for export to be advanced 2 cents per 
hundred pounds; also except rates between Pacific Coast 
and western trunk line and southwestern territories to be 
advanced 3 cents per hundred pounds. Should instances 
develop where this proposed adjustment might result in 
disruption of any established rate relationship as between 
markets, existing equalization to be continued by subse- 
quent necessary readjustments. 

Coal, lignite, bituminous, anthracite and semi- anthracite, 
also coke, 15 cents per ton. 


24. 


Clay, gravel, sand and crushed stone, 714 cents per ton. 

Cement, brick and articles taking the same rates; 
stone — other than crushed — including artificial stone; 
also lime and plaster, 1 cent per hundred pounds. 

Lumber and articles taking the same rates, or arbi- 
traries over lumber rates, 2 cents per hundred pounds. 

Through rates to and from Eastern and Southeastern 
territory, excepting on lumber, to be advanced to the ex- 
tent Western line earnings are advanced, the entire ad- 
vance to accrue to Western carriers, excepting that no 
advance is proposed in class rates between Eastern terri- 
tory and Mississippi River — Dubuque and south — and 
Illinois and southern Wisconsin pro-rating territory. 

No change is proposed in current charges for switching, 
reconsigning or for other accessorial services. 

Some additional exceptions as to rates on transconti- 
nental traffic will be submitted by a succeeding witness. 

As to passenger fares, we did not in our original peti- 
tion nor do we now propose any change in the existing 
standard basis. Our judgment and experience dictate 
that any increase at this time would not substantially in- 
crease the revenues. Competition with other modes of 
travel is acute, and daily becoming more so, and any in- 
crease in the present rates would not invite an increase in 
rail travel, but, on the contrary, would undoubtedly pro- 
voke a decrease. ; 

On the other hand, while a reduction in the present 
passenger rates might stimulate slightly the present pas- 
senger traffic, our judgment is that this possible slight 
increase would not be sufficient even to offset the loss of 
revenue that would result from a general decrease in the 
current fare. We, therefore, believe that it would be un- 
wise and futile to suggest at this time any change in the 
present standard basis. 

The amount of increase we are asking for is nominal and 
to the individual who may pay it will be so negligible 
that it will cause no ripple in his daily life or pursuits. 
In the aggregate to the individual railroads, however, it 
will materially aid in maintaining that adequate service 
which is of far greater value to the producer than any 
fanciful damage he might think he would suffer by an 
advance of 1 cent or less per bushel for the transportation 
of his products. When daily fluctuations in grain prices 
are often several times greater than the meager advance 
we have proposed, it is indeed difficult to conceive how 
this slight advance could in actuality affect the situation. 


25 


The so-called Hoch-Smith resolution provides that the 
Interstate Commerce Commission shall investigate the 
general freight rate structure of the country, considering, 
as a factor in rate-making, economic conditions prevailing 
in the various industries, including agriculture. In the 
establishment of voluntary rates by the carriers this par- 
ticular feature, as well as the usual features governing 
rate-making, has been given due consideration. 

The railroads exist on the sale of transportation and 
unless sales can be made on a reasonable basis that will 
promote freedom of movement—assuming, of course, that. 
there is demand for transportation—the railroads cannot 
thrive nor can they provide the desired quantity and 
quality of product. Consequently, the rates that have 
been inaugurated by the railroads are those rates which 
we believe will yield some profit and at the same time will 
create free movement of tonnage. This method of rate- 
making appears to be the essence of the Hoch-Smith reso- 
lution. 

The Commission is further directed. by Congress, under 
the Hoch-Smith resolution, to effect such changes in the 
rate structure as will promote the free movement of prod- 
ucts of agriculture at the lowest possible lawful rates com- 
patible with the maintenance of adequate transportation 
service. Western railroads were built primarily to pro- 
mote and develop the production of the soil. There was 
little particular tonnage of other character to attract 
pioneer construction and as a matter of fact, there are 
today in Western territory great areas of land that pro- 
duce only a minimum amount of other tonnage. There- 
fore, the Western railways are very largely dependent for 
their livelihood upon the free movement of the products 
of the soil, and rates have been made so as to promote 
this free movement. 

Western freight rates on wheat and its products, as 
well as hay, are now only 1714 per cent higher than the 
rates in effect at the end of Federal control, rates on 
coarse grains are only 534. per cent higher, while the 
rates on all other commodities are 2114 per cent higher 
than the rates at the end of Federal control, except that 
on live stock the increase is less than the 2114 per cent 
on other commodities due to the 20 per cent reduction 
which has been made in the rates for the longer hauls. 
Further, in the general advance in rates made by the 
Director General of Railroads in 1918, the advance in 
rates on grain and its products and also on live stock 


26 


was less than on other commodities. From these figures 
it is evident that the principal items covered by the Hoch- 
Smith resolution have already received preferential treat- 
ment as compared with other commodities. 

So far as freedom of movement is concerned, we have 
yet to learn of a single instance where, under the rates 
fixed by the Director General of Railroads in 1918, the 
higher rates established by the Interstate Commerce Com- 
mission in 1920 or the reduced rates in effect today, any 
grain or live stock intended for shipment has failed to 
move on account of these freight rates. And if our peti- 
tion for advanced rates is granted, grain and live stock 
will still continue in their relative position as to other: 
commodities of having incurred a smaller advance since 
pre-war days than other items of commerce. 

While the Hoch-Smith resolution emphasizes the pro- 
priety of considering the economic condition of industry 
in the adjustment of rates in so far as it is legally possible 
to do so, we do not understand that the purpose of this 
resolution: is to eliminate all other customary factors that 
enter into the making of rates. If this were true, a most 
deplorably chaotic situation would ensue. <A prosperous 
industry might be asked to pay rates that from every 
other standpoint would be too high in order to help out 
some less fortunate industry, the railroads being used as 
the channel through which to balance the accounts. In 
the event all Tae EE should be depressed, God help the 
railroads. 


SITUATION OF THE DENVER & RIO GRANDE 
WESTERN 


Testimony of J. S. Pyeatt 


Ay. S. Pyeatt, president of the Denver & Rio Grande 
Western Railroad, testified as to the conditions with which 
his line is confronted. The Denver & Rio Grande Western 
is one of the outstanding examples of carriers located in 
the Western district whose present revenue situation and 
operating conditions reflect the extreme adversities con- 
fronting the Western transportation industry as a whole. 

I recognize fully, although reluctantly so, that the Rio 
Grande cannot consistently nor practically expect any 
other or different treatment than that to be accorded the 
carriers aS a whole, in the Western district, in this case. 


27 


Nevertheless, I feel that Rio Grande’s situation will dem- 
onstrate the urgent necessity for some measure of relief 
to all carriers in the West, 

The marked decline, almost to the point of non-produc- 
tion, in the metal mining industry in Colorado and Utah 
during the past ten years has most seriously affected Rio 
Grande’s field of revenue production. Our secondary main 
lines and branch lines, originally constructed to serve 
metal mining districts, now serve growing agricultural 
and stock raising communities which must have continued 
adequate rail transportation if the states of Colorado and 
Utah are to be permitted to recover from the blow suf- 
fered by the decline of the metal mining industry. 

The agricultural and stock raising industries in Colo- 
rado and Utah have now developed to a point which justi- 
fies, from a transportation viewpoint, their being re- 
quired to stand upon their own feet, with relation to other 
forms of industrial activity. There can be no justifiable 
reason for according these industries within these states 
a rate level which permits them to expand at the expense 
of other industrial development, nor solely to enter dis- 
tant markets that they are not economically located log- 
ically to serve. 

The radical change in the volumes of the commodities 
handled by the Rio Grande during the past decade, re- 
sulting from the decline in the metal mining industry, 
without prospect of revival, succeeded by an increase in 
the lower rate bearing coal mining industry, together with 
the loss of transcontinental traffic which we have suffered 
with no prospect of recovery, have greatly restricted our 
revenue producing field, without offering an opportunity 
for a corresponding reduction in operating costs, or op- 
portunity for any substantial abandonment of mileage. 

As regards the rate situation, prior to the World War, 
Rio Grande’s position as an exclusively mountain and 
desert railroad system, with resultant high operating costs 
and sparse population to be served, had been recognized 
by a higher rate structure than that accorded systems 
located in the more favorable prairie and plains regions. 
This position has not since been taken into consideration 
in the various general rate changes that have been made. 
Consequently, there has been no corresponding relief for 
Rio Grande from the increased expenses of operation dur- 
ing this period, which, because of geographical location, 
have risen in even greater ratio than the increases met 
with by other Western carriers. 


28 


A striking example of these higher operating costs is 
evidenced by the fact that Rio Grande’s prevailing rate 
of pay for a brakeman is higher than the standard rate 
of pay for a conductor. These higher wage bases were 
originally established during the early negotiations with 
organized labor, about 35 years ago, under the conditions 
surrounding a newly settled mountainous country ap- 
proaching the peak of its boom in the metal mining in- 
dustry. The hardships with respect to living conditions 
and restricted social and educational facilities then exist- 
ing, have long since disappeared. Nevertheless, these 
higher wage levels have been maintained throughout suc- 
ceeding years and have been confirmed by a government 
tribunal. 

On the four per cent grade, narrow gauge train district 
traversing the Continental Divide over Cumbres Pass, the 
use of three narrow gauge locomotives is necessary to se- 
cure a train tonnage capacity equal to one-sixth that of 
one moderate size standard gauge locomotive on a 0.5 per 
cent grade line. In other words, it requires 18 engineers, 
18 firemen, 6 conductors and 12 brakemen to perform the 
same service that one engineer, one fireman, one conductor 
and two brakemen perform in connection with the ordinary 
train load on a prairie line. 

Rio Grande’s property investment of $167,000,000 in 
1910 received a return of 4 per cent. At the close of 1915, 
after the further investment of $13,000,000 in additions 
and betterments, the rate of return was only 3.6 per cent. 
At the close of 1920, after further improvements of ap- 
proximately $6,500,000 or a total since 1910 of $19,500,- 
000, a return of 3.82 per cent was earned. For the period 
1921 to 1924, after still further investment of approxi- 
mately $10,000,000, or a total of almost $30,000,000 since 
1910, the rate of return was only 1.43 per cent in 1924, or 
an annual average of but 1.96 per cent for the four-year 
period. 

Such a situation requires no further comment. Mani- 
festly the physical property of the Rio Grande has not 
been improved to an extent exceeding the development of 
its traffic or the requirements of the Transporation Act 
for adequate and dependable transportation service. On 
the contrary, it is apparent that for the first time in the 
past ten, if not the past twenty years, the transportation 
plant of the Denver & Rio Grande Western and the other 
Western carriers as well has most nearly approached the 
capacity necessities and state of efficiency necessary to 


29 


properly meet the requirements for adequate transporta- 
tion. Obviously, if the additional capital outlay which has 
produced this desirable condition of plant efficiency con- 
tinues to receive a decreasing rate of return, it is manifest 
that further additions to roadway, structures ‘and equip- 
ment cannot be undertaken as there will be no market 
available for the realization of additional capital through 
the sale of railroad securities. 


EXCEPTIONS IN TRANSCONTINENTAL RATES 
Testimony of P. P. Hastings 


Exceptions from the general program of the railroads 
as laid down by Mr. Spens were discussed with reference 
to transcontinental traffic by Paul P. Hastings, general 
freight agent of the Atchison, Topeka & Santa Fe Rail- 
way. In proposing exceptions to whatever percentage ad- 
vance in freight rates may be authorized in this case, the 
transcontinental lines have borne in mind that this is an 
application for an increase in revenues rather than an 
advance in rates only. The increase of any rates which 
would fail to produce additional net revenue would be 
worse than useless. 

On transcontinental traffic, certain exceptions in rate 
changes are proposed from the carriers’ general petition 
for a five per cent increase in freight rates. These excep- 
tions fall generally within three classes. 

In the first class are those transcontinental rates which 
it is proposed to increase by flat amounts to preserve ex- 
isting differential relationships. 

In the second class are those transcontinental rates to 
intermediate points where rates are graded. In this class, 
it is proposed to increase these intermediate rates in such 
a manner that the rates to intermediate points will not 
exceed the rates to the terminal. 

The third class includes those transcontinental rates in 
which no advances are proposed by the railways. This 
class covers those commodities in whose transportation the 
railways are subject to water competition, such as that 
through the Panama Canal. It is obvious that to increase 
the rates on these commodities would result in a logs, 
rather than a gain, in revenue to the railways. 

Also included in this class in which no increases are 
proposed are the transcontinental rates on perishable traf- 


30 


fic moving in large volume from the Pacific Coast. This 
traffic includes citrus fruits, deciduous fruits and fresh 
vegetables. As these perishable commodities from the 
Pacific Coast have the longest haul of such traffic to 
Eastern markets, and, consequently, the highest freight 
rates now, it is felt that no freight rate increases should 
now be made on account of their economic position. 


OPPOSITION TO PROPOSED NEW RATE GROUP 
Testimony of S. H. Johnson 


The attitude of the Western railways toward the pro- 
posed formation of a new Southwestern rate group was 
presented by Stanley H. Johnson, vice-president of the 
Chicago, Rock Island & Pacific Railway. 

In 1920, the Interstate Commerce Commission, for rate- 
making purposes, divided the Western territory into two 
groups, the boundary line between those groups being rep- 
resented, roughly speaking by the Rocky Mountains. This 
is generally satisfactory to the carriers, but information 
is at hand indicating that various State Commissions lo- 
cated in the Southwest intend to advocate in this case the 
segregation for rate-making purposes of the southwestern 
portion of the United States, by including in a new group 
the states of Texas, Louisiana, Arkansas and Oklahoma, 
and certain portions of Missouri and Kansas. 

This proposition is apparently born of the theory that 
the Southwestern roads are more prosperous than the 
Northwestern roads, and that the general increase in 
freight rates should, therefore, be less in Southwestern 
than in Northwestern territory. This view is not repre- 
sentative, to any substantial extent, of the true facts, nor 
for any broad period of time. To the small extent that 
any such condition may have been present, I wish to as- 
sert that it has been temporary, and the indications are 
that it is changing to the end that the Northwestern car- 
riers may probably in the future be relatively more pros- 
perous than those in Southwestern territory. 

As nearly as the figures may be segregated in the two 
territories, it appears that in the past four years the 
Northwestern roads have earned an average annual return 
of 3.40 per cent, while the Southwestern roads have earned 
3.72 per cent. In two of these four years, the Southwestern 


31 


carriers have been below, and in two years above, the 
Northwestern carriers, in the rate of return which they 
have earned. In 1924, when the Southwestern roads 
topped the Northwestern in their rate of return, there 
were bumper wheat crops in the Southwest and a shortage 
in the corn crop in the Northwest. These conditions were 
the most prominent influences which caused the South- 
western roads to make a relatively better showing. 

However, regardless of whether the Southwestern car- 
riers have been more prosperous in a temporary way than 
the Northwestern carriers, the roads in both sections of 
the West have been earning substantially less than the 
fair return to which they are entitled, and an advance in 
freight rates in both territories is both necessary and 
justified. 

Mr. Johnson also discussed certain rate reductions in 
Western territory which have been made by the Interstate 
Commerce Commission since the Western railways’ peti- 
tion for increased earnings was filed on April 28, 1925. If 
these reductions are enforced and the carriers are merely 
sranted advances based upon such reduced rates, it will 
obviously not afford them the revenues to which it is be- 
lieved they will have proven themselves legally entitled as 
a minimum. It is, therefore, recommended that such ad- 
vances as are allowed be applied to the rates in effect on 
the date the petition was filed and that the record in such 
cases be ordered re-opened and the issue further considered 
as based upon the merits of the existing situation. 


WESTERN AGRICULTURAL CONDITIONS 
Testimony of A. E. Van Petten 


The financial situation of Western agriculture was dis- 
cussed by five witnesses, A. E. Van Petten, president of 
the Pioneer Mortgage Company of Topeka, Kansas; F. 
W. Koneman, vice-president and manager of the Citizens 
Investment Co. of Sioux Falls, South Dakota; Albert H. 
Denton, president of the Home National Bank of Arkan- 
sas City, Kansas; N. Holman, president of the First Na- 
tional Bank of Guthrie, Oklahoma, and H. I. Foskett, of 
Shenandoah, Iowa. Mr. Van Petten’s testimony was to 
the following general tenor. The demand for farm lands 
in his territory is very much greater than it was 8 or 4 


32 


years ago. There has been a substantial improvement 
in the last two years, as compared with 1920 and 1921, in 
the matter of foreclosure upon farm lands. ‘There are 
practically no foreclosures now except in unusual cases 
of difficulties arising from the period of inflation. Thé 
farmer is now better able to pay the interest on his loans 
than he has been since the period of war-time prices. In 
a general way he is able to pay his interest out of his 
earnings from the land and a great many of our farmers 
are now paying off their loans, some of them in part and 
some of them in full. 

Any farmer who did not load up with excessively high- 
priced live stock and did not take on too much additional 
land during the inflation period is or should be making 
money today. Indeed, I doubt if any farmer who is con- 
servative would want to change the conditions now for 
those prior to the war. 

My idea is that any farmer has a better opportunity to 
make money with prices as they now stand than he had 
before the war. In other words, I think there is a better 
opportunity now to be conservative and to save money 
under the present conditions than there was before the 
war. 


Testimony of F. W. Koneman 


The testimony of F. W. Koneman, vice-president and 
manager of the Citizens Investment Company of Sioux 
Falls, South Dakota, followed the same general trend. In 
his testimony Mr. Koneman stated that in his territory 
there are very few foreclosures at the present time; that 
farming is more profitable now than it has been and that, 
speaking generally, the farming industry is on a fairly 
profitable basis, better, in his opinion, than it was in 1915, 
1916 and 1917. A great many farmers say that they have 
made more money in the last two years than they did prior 
to the war. 


Testimony of A. H. Denton 


Albert H. Denton, president of the Home National Bank 
of Arkansas City, Kansas, testified that the farmers as a 
class in his territory are making money; that agriculture 
is in a satisfactory condition and that there is no sub- 
stantial default in interest payment on the farmers’ obli- 
gations. Further, Mr. Denton testified that in his terri- 
tory farmers as a class are now better off than they were 
before the war, and that agricultural opportunity is now 


30 


better. A farmer who works well, economically and ef- 
ficiently can made profits and can make money. 


Testimony of N. Holman 


A statement of the present agricultural conditions in 
Oklahoma was furnished by N. Holman, president of the 
First National Bank of Guthrie, Okla., who testified that 
agricultural conditions in his state have materially im- 
proved in the past two years. There has been a continual 
liquidation of indebtedness by the farmers. Not only are 
the farmers paying off their old debts, but they are very 
little inclined to borrow money for their current opera- 
tions, carrying on instead on their own funds and re- 
sources. This is significant proof of their improved con- 
dition. | 

Testimony of H. I. Foskett 


H. I. Foskett of Shenandoah, Iowa, testified as to the 
situation of Iowa agriculture. Mr. Foskett has made a 
survey of five townships in four counties in Iowa to as- 
certain the percentage of land that was mortgaged and 
the purpose for which the money was borrowed. He found 
that an average of but 50 per cent of the acreage was 
mortgaged and of this 50 per cent approximately 88 per 


cent had been mortgaged for the purchase price. <A con- - 


servative farmer who did not speculate in the period of 
inflation is now in good condition, quite as good as he 
was before the war. Further, a number of present mort- 
sages are now being paid off in options. 


THE CONDITION OF AGRICULTURE 
Testimony of H. W. Moorhouse 


The condition of agriculture in general and of Western 
agriculture in particular was presented by H. W. Moor- 


house, general supervisor of the Agricultural Research 


Division of the Brookmire Economic Service and formerly 
Director of Economic Research of the American Farm 
Bureau Federation. 

Mr. Moorhouse first discussed the long-time trend of 
farm prices and of prices of all commodities from 1791 to 
the present day. On the customarily accepted base of 
1913 as 100, prices of commodities in general were mate- 
rially higher than the prices of farm products up to the 


34 


wes 


time of the Civil War. During the Civil War period farm 
prices overtook and passed prices in general, only to fall 
below again, however, after the close of the war. In 1909 
farm prices again caught up with prices of commodities in 
general, followed the same course that these prices did until 
the outbreak of the World War and then exceeded prices 
in general, The post-war depression forced agricultural 
prices below the level of general prices, but this loss has 
been more than made up and farm prices are now rela- 
tively higher than are prices in general. 

Throughout the entire period covered, agricultural 
prices have moved toward the general level of all com- 
modities. In the pre-war period from 1909 to 1918, agri- 
cultural prices had reached the most favorable position in 
relation to all prices that they had ever enjoyed with the 
exception of two years during the Civil War. At the 
present time, in 1925, this same favorable relationship 
prevails. 

The present favorable relationship of agricultural 
prices to the prices of all commodities is to be considered 
in the light of the trend prior to the World War. The 
factors that worked then causing a gain in agricultural 
prices over other prices, are operating just as strongly 
now. In fact, the basic influences, namely the growth of 
our city-dwelling population which provides constantly 
widening markets, and the slowing up of the expansion of 
farm land area almost to the stationary point tending to 
limit supplies, are both in favor of the advance of the 
level of agricultural prices above the price level of all 
_ commodities in the future. | 

Mr. Moorhouse quoted the following statement made by 
the United States Department of Agriculture: ‘‘Farm 
production in 1924 with a value of $12,404,000,000, ex- 
eluding crops fed to live stock, had a relative exchange 
value in terms of non-agricultural commodities amounting 
to about one per cent above the average of the five years 
1910-1914. When reduced to terms of a dollar’s worth 
of non-agricultural commodities in 1910-1914, the farm 
production of 1924 had a value of $7,642,000,000, and, 
for the first year since the deflation period began in 1920, 
exceeded the pre-war average of $7,580,000,000.’’ On the 
basis of the five-year average 1910-1914 as 100, the rela- 
tive exchange value of farm production in terms of non- 
agricultural commodities was 88.0 in 1920, 82.1 in 1921, 
85.6 in 1922, 97.3 in 1923 and 100.8 in 1924. This is a 
striking illustration of the growth in farm purchasing 


35 


power which has occurred since 1920 and 1921, and shows, 
further, that agriculture as a whole is now even better off 
than in the five years immediately preceding the World 
War. 

Figures were next presented showing the farmers’ 
available cash income for twenty-four Western states and 
for the United States as a whole, for each year from the 
fiscal year 1910 to the fiscal year 1925, inclusive. The 
term ‘‘available cash income’’ means the amount of net 
cash sales less taxes and interest charges. It appears that 
in the fiscal year 1925 the farmers’ available cash income 
for the Western district amounted to $4,958,100,000, a 
figure which has been exceeded but three times in the past 
sixteen years and then only in the years of war-time price 
inflation. 

To give some illustration of the increase in the farmers’ 
available cash income which had occurred in the fiscal 
year 1925, as contrasted with the fiscal year 1922, and the 
fiscal year 1916, the last year before this country entered 
the World War, the detailed figures are presented below 
in millions of dollars. | 


Farmers’ Available Cash Income 
(Stated in millions of dollars) 


State Ms 1916 1922 1925 
THinois.y 2 peice bate eee eee $ 287.8 $ 239.7 $ 418.6 
LOWaOE TR Bate eae ce eae 998.4 261.6 469.6 
Missourt {36% 02 eerie eee eae 180.1 158.4 256.0 
WISCOnSINI hse. aunt. aire eee 139.8 176.8 226.8 
Minnesota) sc4).. chee oe eee 148.7 171.9 SLL 
Now Dakota see) se ee 146.6 62.3 204.9 
Soo Dakotat 2k eee sore eee 121.3 49.0  +149.8 
Nebraska: {2 ieee eek nee alee 190.6 133.9 291.9 
Kansas 7h eee eee ee 234.4 198.8 356.4 
LOUISIANA cht 2s ee ee eee 47.2 61.2 100.9 
Arkansas eo. 20 Veale ee eee eee 76.4 G23 15-7 
TOMAS) 0's 1h CO SRR TEN, Soe eee 342.5 263.2 740.6 
Oklahoris shiek 1s Bek eae eee oe 127.9 93.1 282.2 
Montana tl oat cd dene eae eae Tore 43.4 99.1 
Tahoe? ik ae eee a oe eee 40.9 46.4 64.5 
WW YOIMING Kile ge seus ee chee On 29.0 17.8 25.2 
Nevada tare 3h oe Soke, eae ae 9.3 6.3 9.5 
Uta 24 Re os is  e SA see Va2 Zt 36.1 
Colorado: VS Bed 3 Sa ee eee T2 78.3 1052 
ATIZODA Jat eat dgiac.s te hae eee tae 10.5 16.1 31.0 
New Mexicdgcs «2. sae eee ee 27.5 BIAS 32.0 
Washineton te. 60\ 3 ate ee eee 75.2 124.8 114.8 
Orezon 17h neers fc eee ahs) eee 53.0 66.5 76.2 
Californiaiics GB eh. gin ee Ce eae 280.6 355.7 380.0 


Total, 24 Western States. ..$3,038.9 $2,766.3 $4,958.1 
36 


The purchasing power of the individual agricultural 
worker now is also materially higher than in pre-war days, 
based on the relationship of per capita income to non- 
agricultural prices. Taking the year 1913 as 100, the pur- 
chasing power of the individual agricultural worker was 
107 in 1924, 7 per cent above his purchasing power in 
1913. Further, the purchasing power per individual in 
1924 has been exceeded in but three years since 1867,— 
1917, 1918 and 1919, when the peak of war-time prices was 
reached. On the basis of 1913 as 100, the purchasing 
power of the individual agricultural worker is shown be- 
low for various years: 


Year Purchasing Power 
1867 59 
1870 59 
1875 58 
1880 73 
1885 69 
1890 74 
1895 67 
1900 th 
1905 78 
1910 99 
1913 100 
1915 96 
1916 96 
1917 126 
1918 134 
1919 111 
1920 90 
1921 71 
1922 83 
1923 97 
1924 LOY, 


The average purchasing power of the average Western 
farm is now 14.1 per cent greater than the pre-war pur- 
chasing power. On the basis of the five-year average 
1909—1913 as 100, the purchasing power of the average 
Western farm stood at 114.1 in the fiscal year 1925. This 
figure has been exceeded but twice in the last sixteen years 
and then only in the years when this country was an active 
participant in the war. 

The purchasing power of the average Western farm is 
shown below for each of the fiscal years from 1910 to 


a7 


1925, based on the average of the five years 1909—1913 
as 100: 


Year Purchasing Power 
1910 vise 
1911 98.2 
1912 95.6 
1913 104.7 
1914 102.4 
1915 106.8 
1916 101.2 
LOT Te 108.7 
1918 129.0 
1919 134.8 
1920 110.0 
1921 87.8 
1922 66.3 
1923 83.2 
1924 97.5 
1925 114.1 


When from the gross sales of agricultural products there 
are deducted the sales to other farmers, interest and tax 
payments, wage payments and the various other expendi- 
tures necessary in running a farm, there was left in the 
fiscal year 1925 a balance of $5,140,000,000 to the farm 
owners and farm operators for living expenses and other 
purposes. This amount has been exceeded but three times 
in the past sixteen years, in 1917, 1918 and 1919. The 
figures of this balance to the owners and operators for 
each of the last sixteen years are shown below, in millions 
of dollars: 1910 


$3,150 
1911 3.068 
1912 9,853 
1913 2.988 
1914 2,998 
1915 3.006 
1916 3,495 
1917 4,854 
1918 7,799 
1919 8,518 
1920 7,837 
1921 4.163 
1922 2.821 
1923 4.156 
1924 4.397 
1925 5,140 


38 


The foregoing discussion of increased purchasing power 
has been based mainly upon the two factors entering into 
the total of agricultural sales and income, namely: the 
volume of commodities produced and the unit prices at 
which these commodities have been sold. Comparison 
upon the unit price basis alone, however, may also be made, 
with the five-year average 1909-19138 representing 100. 
The purchasing power per unit in August, 1925, was 107.0 
for beef steers, 120.0 for hogs and 128.0 for lambs. 

In connection with Mr. Moorhouse’s testimony of agri- 
cultural income and purchasing power it should be realized 
that in addition the farmer also has his home furnished 
and much of his food supply. 


Testimony of W. J. Hagenah 


The high prices of farm products during the past year 
and a half have brought prosperity to the farmers, testi- 
fied W. J. Hagenah, prominent public utility rate expert. 
The prices which they have received for their products 
have enabled the farmers to liquidate most of their current 
debts and a part of their mortgage indebtedness, to repay 
notes and accrued interest at the banks, to pay delinquent 
taxes, ete. With the deflation of the unsound real estate 
values which grew out of the war, with the collapse of 
unsound credit based thereon in some states, and with an 
improved credit and banking situation in the agricultural 
sections, agriculture is again on a sound basis. 

In the states which were hit hardest by the depression, 
important gains are being made in diversified farming, 
this movement, fostered by the banks and by the agri- 
cultural colleges, having attained sufficient headway to 
serve as a buffer from the severe effects of the old one- 
erop system. Bank deposits in these farm states have in- 
ereased markedly, frozen loans and discounts have largely 
been liquidated, and old accounts with merchants have 
been paid. Country banks, instead of requiring assistance 
from the large correspondent banks and rediscounts from 
the Federal Reserve banks, are now sending their funds 
to the large cities for investment. 

All branches of the farm machinery trade are again 
active, and the volume of their sales has increased greatly. 
During the unprofitable crop years 1920-1923, farmers de- 
ferred buying, but with deficits made up, a large amount © 
of machinery.and parts is again being purchased. The 
revival of Europe has also opened up a huge market for 


39 


the American farmer’s exportable surplus, although the 
rapidly increasing urban population at home demands a 
constantly larger share. 

The farmer, moreover, is now in a position to receive 
financial assistance from new sources, and more assistance 
from former sources. With his status improved by the 
events of the past two years he is again a welcome visitor 
at the commercial bank, while the great expansion of: the 
farm loan banks has placed huge sums at the farmer’s 
disposal for long terms at very reasonable rates. The ex- 
pansion of the joint stock bank has been of material aid, 
while the recent intermediate credit bank law will supply 
a credit need midway between the long term loan and the 
type of commercial paper eligible for rediscount at the 
Federal Reserve banks. 

Agricultural prices have risen until they are now rela- 
tively higher than the prices of other commodities. There 
is nothing on the national or international horizon at the 
present time to indicate that substantially the present 
prices will not' prevail for several years, the probability 
being that a number of farm prices will go higher rather 
than lower. 

Since 1910 the number of farms operated has remained 
practically stationary, and the number of persons engaged 
in agriculture has actually declined. The non-agricultural 
population, meanwhile, has increased from 60,000,000 in 
1910 to 82,000,000 at the present time. With increased 
taxes, interest charges and wages for farm help, the cost 
of agricultural production has naturally increased. While 
this has given a considerable stimulus to various labor 
saving devices, a number of years will be required to in- 
stall an appreciable amount and to effect a reduction in 
costs. Past farm history shows that a remunerative price 
will increase the use of machinery and improved methods, 
but as the typical farmer is exceedingly conservative, the 
changes will come about slowly and for that reason there 
is nothing to indicate that the supply of agricultural prod- 
ucts will be increased in an unusual manner during the 
next decade. With a stationary rural population, a 
rapidly increasing urban population, and greatly improved 
credit and transportation facilities, the demand factors 
have rapidly outstripped the supply factors, and as long 
as this situation obtains the present price advances will 
be substantially maintained. The rapid recovery in farm 
prices has removed one of the most important influences 


40 


tending to reduce other prices. Since the deflation in 1920 
and 1921 was a forced movement of extraordinary propor- 
tions, the quick recovery was to be expected and in that 
recovery is seen the basis for higher, rather than lower, 
farm prices in the future. 


INCREASED COSTS OF RAILWAY CONSTRUCTION 
Testimony of F. C. Squire 


Frank C. Squire, valuation engineer of the valuation 
organization of the Western railways testified as to the 
increased cost of railway construction in 1925 as compared 
with 1914. His testimony is summarized in the following 
table which shows the percentage of increase of the 1925 
costs of construction over the corresponding costs in 1914 
for the Western railways. 


Percentage of Increase in Construction Costs of Western 


Railways 
; Percentage increase, 
Account | 1925 over 1914 
PSTN CET MLS PIe Paar hla toe ee dies lide SG gras eke es 100 
Cea n Shes 05, a A BPR, hoe ie URE I ei Ne 65 
APG LEE ATV e SUD WAYS gid osc bea sv siats sux Alle ohatacelate 6 65 
Bridges: trestles and culyerts /)..0 0346 0...6.% 85. 
TEP Gare alate ico Reha Mave hive Pe Sale sees Mather tre:. 70 
ess een OER eS CH Aes Celene Aha t's vn! ys Cueiaceialier at 9: 5 63! 45 
SAUCE ILE ACU INALELIAL ssc dete 6 Meltl id's walade ecalae’ She 85 
PEVEUL EEG [IR ei ite St Ribea hs Neue ET SS ne, as PSP abe apt wee drauk lela tuys 95 
Pprack A9ying ‘ANd \SULTAGID Son ie eee ce eth cis we 125 
Mee OLeWia ve TODCCS? oooh ies legs Ge clk Ge cae os 90 
Snow and sand fences and ‘snowsheds ...... 90 
ROPRISITIPS 1 AMET GLL TIA Ais atyid bth chee sla: eatehel Cela b a! ot 80 
Pett aT O1NCe DIIGIN GS oc of ordi bia bob wee 100 
PAE VAM URL OII SS ees: 5 ic s Abel wicks cae gece ca eas 100 
VNC EN oe) ARCATA OD CoM pe AIRTO  O  g ReA a m o | 100 
MPIORERUE CLOTS CLs eee le sled Neth eles Males aANy yeas 100 
Shop and engine houses...............e00.. 100 
Ve Mer OMS SA TC WLOGIS (U8 gc ON RR sole SL Li al abe reves 80 
COMMA NOGOLE SUROTVGS< cle cidis yes + cvs els Gesle wee le 80 
Telegraph and telephone lines.............. 70 
RAR VATLUCTIOCK ETS i. c cicccavele's Seplacs giacee's 85 
PPO WWOTy DAAH Gt DULG yo 5) tie ore arnsi'd 4a redows grates 100 
Power, CIStribution, SYSTEMS: 60.4 8 ouiee aecala acts 70 
Miscellaneous structures .......c.ccccceees 100 
Roadway machines ....,.... Pe astern Meester a Mars We 125 
Oty DITC NITION Y;) rare Aba ee 16 whee ces acess DAA Boe bleak 110 
Over Diane /MACHINEL Yel) os viele aos twid eabelans 110 
Pee LOCO OLEVES Halves ea ein oe ekkis epblelote se cute 116 
SEEPS IOCOMOULVESE iG. asides sea tae ahs Ce phot 116 


Percentage increase, 


Account 1925 over 1914 
Mreightetrain .Carscitu een. aes ite ee 90 
PAssengenr train CATS {ok oa otanere emia betas 94 
Hloating equipment. ees. - uni + e s er oneinie es 70 
Work-equipment. 3.0.0.0. 5's ws Be i Lot tgs 90 
Genéral expenses: is 24. sabe asi eee oui eee 78 
Interest: during, construction, 7 yu. gestae 78 

Grand “otal? s:."ae stages +S rhea oie aera 82 


The foregoing grand total average is a weighted average. 


THE CONDITION OF AGRICULTURE 
Testimony of Walter Ferguson 


Walter Ferguson, vice-president of the First National 
Bank of Oklahoma City, Oklahoma, testified as to the agri- 
cultural situation in his territory, stating that Oklahoma 
agriculture has shown a great recovery in the last year and 
a half with prospects of further improvement. There is 
a general feeling of optimism among the agricultural in- 
terests of the state. The farmer is now obtaining much 
better prices than he did before the war and the agri- 
cultural industry has more money now than it did then. 


Testimony of David Friday 


David Friday, noted economist and former president of 
the Michigan Agricultural College, testified as to the gen- 
eral agricultural situation. From 1897 to 1924, the prices 
of farm products increased 141 per cent while the prices 
of non-agricultural commodities increased 124 per cent. 
This has been caused by the increasing growth of American 
industry, by the great increase in the urban population 
which has to be fed, and by similar related factors which 
have materially raised the demand for products of the 
farm. This greatly increased demand has forced up the 
prices of agricultural products, with accompanying gains 
for the farmer. 

Not only has the farmer profited from the 141 per cent 
increase which has occurred in the unit prices of the 
products which he sells, but he has also profited heavily 
by the increase in the volume of his production which he 
has sold at these higher prices. While the unit prices of 
farm products were increasing 141 per cent from 1897 to 


42 


1924, there was at the same time an increase of 45 per 
eent in the physical volume of these products, these two 
factors thus working together to the great financial ad- 
vantage of agriculture. 

These two factors have caused an actual increase in the 
value of farm products, excluding crops fed to live stock, 
of from $2,904,000,000 in 1897 to $12,404,000,000 in 1924, 
an increase amounting to $9,500,000,000. 

Further, it appears that the increase which has oc- 
curred in the value of farm products has been materially 
greater in the West than in the Hast. In 1924, as com- 
pared with the average in the six years 1909-1914, the 
value of crops in the West had increased 97 per cent, 
while in the East the corresponding increase was but 48 
per cent. In the West South Central states, the increase 
was 130 per cent; in the Pacific Coast states, 1382 per cent, 
and in the Mountain states, 188 per cent. 

The value of animal products has likewise increased 

materially in the Western states, being 56 per cent greater 
in 1924 than the average for the six years 1909-1914, in- 
clusive. 
- The average crop values for the six-year period 1909- 
1914, inclusive, and the corresponding values in 1923 and 
1924 are presented below for various geographical divi- 
sions of the Western district: 


Estimated Value of Crops by Geographical Divisions 
(Stated in’ millions of dollars) 


Per cent increase 


6-year 1924 over 6-year 
Geographic Division average 1923 1924 average 
West North Central... $1,638 SPAOMATE $2,984 82.2 
East South Central... 651 936 1.025 57.4 
West South Central... 841 1,874 1,933 129.8 
RTOUMYES Ii Cts. kh os our 238 496 567 138.2 
AYER 95 5 My Rag a 309 Tt 716 tous 
POtALae VWEStRe ume cc ess 3,677 6,270 7,225 96.5 


Dr. Friday presented a study made by the Agricultural 
Experiment Station of North Dakota in cooperation with 
the Bureau of Agricultural Economics of the United States 
Department of Agriculture. This study covered the assets 
and liabilities of 159 farmers in southwestern North 
Dakota at the time of their settlement, and their net worth 
in 1922. The average date of settlement of these 159 
farmers was 1906. The total average assets for each in- 


43 


dividual farmer at date of settlement were $4,331. The 
average liabilities were $1,450, so the average net worth 
at settlement amounted to $2,881. The average net worth 
in 1922 was $19,473, a gain of $16,592. Exclusive of in- 
creased land value, the gain in net worth was $10,192. 

The average annual gain in net worth, including in- 
creased land value, was $1,191 while, excluding increased 
land value, this annual average gain was $676 per indi- 
vidual. 

As reflecting improved economic conditions now existing 
in Western territory, Dr. Friday presented certain finan- 
celal statistics showing for each Western state the bank 
deposits per capita in 1914, 1921, 1922, 1923 and 1924, 
and on April 6, 1925. A summary of these figures ap-' 
pears below: 


Bank Deposits Per Capita 


April 6, 

State 1914 1921 1922 1923 1924 1925 
Minnesota ..... $168 $302 $299 $316 $314 $335 
Towa) wk Bh 194 31% 319 351 347 355 
Missouri’ 135444 140 256 260 291 288 a 
North Dakota .. 136 wae 224 239 201 249 
South Dakota .. 139 300 305 328 252 280 
Nebraska J) 0)0% 142 275 281 298 295 321 
Kansas 0). eae 96 228 ANG rat 200 230 
Louisiana ...... 69 152 166 180 180 194 
TEXAS ele eee 64 137 136 139 152 185 
Oklahoma ..... 63 170 161 163 145 170 
Arkansas) ivan fs 37 72 82 98 96.) 2 .0Oo: 
Wisconsin ...... 139 242 235 261 272 285 
TNCs eta ee 188 oDe 364 404 421 449 
Montana eee, 164. 228 204 201 164 198 
Wroming ky. 2. 125 319 293 318 290 200 
Coloradowy2 ye." 4145 257 258 279 274 291 
New Mexico .... 64 17 123 ube is 81 83 
ATIZONA Was oteksie ke 126 1%3 177 164 160 AT2 
Utah? yy see eo eee 137 203 198 220 met 239 
Ne@vada ice us 197 368 369 402 415 422 
Ldsho ci ack ew 94 168 152 147 148 146 
Washington .... 146 Bok 214 oat 251 245 
Ore gan igisnes os 150 264 262 286 288 299 
California ..... 287 499 531 602 629 687 
Western District. 141 263 266 291 294 a 


The foregoing figures indicate that for the Western dis- 
trict as a whole there has been a progressive increase in 
average bank deposits from 1921 to 1924 which must 
reflect corresponding improvement in the general economic 
condition of the Western states. 


a Data not available. 
44 


4 


3 


Statistics of farm land value per acre from 1900 to 
1920 were also presented by Dr. Friday. These figures 
appear below, for various geographic divisions of the West. 


Value of Farm Land Alone Per Acre 


Geographie Division 1900 1910 1920 
West North Central.......... $19.37 $43.21 $83.04 
West South Central.......... 5.40 16.06 31.18 
DPC URE EU a eee soars atehg Shere alee G9 6.12 19.73 23.88 
WCU an eae eS ates 17.78 43.76 74.21 
WnsteCUtAGRS:, |e ie siece- deen ots 15.50 32.40 57.36 
Value of Farm Lands & Buildings Per Acre ) 
Geographic Division 1870 1880 1890 1900 1910 1920 
West North Central. bent 55 $14.83 $19.68 $23.14 $49.92 $95.22 
West South Central. 408 5.36 7.91 645 18.50 36.27 
MOE VETT EA BA feo ie Sass te 5.11 14.61 13.45 7.30 22.16 26.96 
ACCT epee Sale ee ey 11.58 14.98 27.57 20.17 48.28 83.16 
United States® 2.007253 18.26 19.02 21.81 19.81 39.60 69.38 


These increases in land values reflect and have resulted 
from the enormous increase which has occurred in agri- 
cultural income. 


FUTURE PRICE LEVELS 


Testimony of G. E. Roberts 


Future price levels were discussed by George E. Roberts, 
vice-president of the National City Bank of New York, who 
testified that lower price levels are not now in sight. 

The general level of prices in the long run is deter- 
mined by the standard of value and the existing facilities 
for supplying credit, based upon the standard. The price 
level before the war was based upon gold, with the gold 
standard in use practically all over the world, and credit 
was restricted within the limits fixed by the requirement 
that all currencies should be redeemed in gold. 

The war forced the temporary abandonment of the gold 
standard, and caused so much credit to be used as pur- 
chasing power that the value of all money was depre- 
ciated, including gold itself. Now, with the world turning 
back to the gold standard, and many countries under- 
taking to resume gold payments, it might seem to be a 
natural assumption that the same forces which deter- 
mined the price level before the war would produce like 
results again, and perhaps oe prices back to the pre- 
war level. 

45 


In other words, it would appear that if all the coun- 
tries which have been off the gold basis were to resume 
gold payments and set about increasing their gold re- 
serves, they would cause a demand for gold which might 
be expected to tighten credit and raise the value of gold 
as compared with commodities. There are, however, coun- 
teracting influences of sufficient weight to at least greatly 
modify any such tendency, and, in the opinion of many 
students of the subject, probably offset it entirely for a 
very considerable period of time. 

The price level is determined by economic forces, but 
these forces sometimes have alternative lines of operation. 
They work constantly to maintain the industrial equilib- 
rium, which may be found at different price levels. In 
view of present conditions, it seems to me that the present 
system of prices is so firmly established, and its various 
features so interlocked, that there is no prospect of its 
being lowered materially, except by influences which would 
operate very slowly over a long period of time; while, on 
the other hand, I see no insuperable obstacle to attaining 
the equilibrium upon about the present level, and there 
are very significant indications that this is being accom- 
plished. I do not think that there is anything in the 
monetary situation over the world likely to cause a lower 
level of prices within any period that can now be reason- 
ably included in a forecast. | 


SITUATION OF THE CHICAGO, MILWAUKEE & 
ST. PAUL 


Testimony of H. E. Byram 


The situation confronting the Chicago, Milwaukee & St. 
Paul Railway was presented to the Interstate Commerce 
Commission by H. E. Byram, now one of the receivers and 
formerly president of that company. The rate of return 
on property investment earned by the St. Paul was 0.74 
per cent in 1921, 1.87 per cent in 1922, 2.75 per cent in 
1923 and 2.58 per cent in 1924 or an annual. average for 
the four years of 2.01 per cent. 

From these figures it will be seen that in no year since 
the passage of the Transportation Act has the St. Paul 
earned a fair return upon its property. On account of the 
disturbed conditions resulting from the war, which caused 
a severe business reaction in the North and Middle West, 


46 


the first two years immediately following the passage of 
the Act, did not afford a fair test of the adequacy of the 
rates established by the Commission. 

The years 1923 and 1924, however, did afford a test of 
the adequacy of the rates now in effect. These years re- 
flected a normal condition of business as measured in terms 
of post-war conditions. There has been an adequate supply 
of good and efficient labor and there have been no troubles 
or disturbances in this field of operation. 

There is no ground or basis for expecting, at least in the 
near future, any lowering of the cost of labor or material, 
or any substantial increase in business which would make 
up the deficit between revenues and cost plus a fair re- 
turn. Seeing how far the revenues of the carriers in this 
section of the country have fallen short of netting a fair 
return since the passage of the Transportation Act, and 
the large losses which the investors in the securities of 
these railroads have sustained, this is not a time for exces- 
Sive caution in establishing adequate rates which will per- 
mit these carriers to earn what the law contemplates. 

The year 1916, which was the last year before the en- 
trance of this country into the war, reflected a normal pre- 
war condition. In that year business was good; there had 
been little increase in the cost of labor or material and 
for the roads in the Northwestern region and the Western 
district there was a normal and proper relationship be- 
tween the cost and charge for service. In the case of the 
St. Paul, the margin was a safe if not a fully adequate 
one. In that year the St. Paul’s net railway operating 
income amounted to a return of 4.92 per cent upon its 
total investment. 

Had this relationship between cost and charge been 
maintained, the St. Paul would today, on the basis of the 
business it actually handled in 1923 and 1924, be in a 
sound financial condition instead of in the hands of re- 
ceivers. A safe and proper margin between cost and 
charge was not maintained and does not obtain at the 
present time. Large increases have occurred in the cost 
of labor and materials which were not met by compensat- 
ing increase in the return or charge. 

A railroad, like any other business, produces something 
to sell; it is subject to the same economic law as other 
business, and when it undertakes, or through regulation is 
required, to sell what it produces at less than cost, bank- 
ruptey is sure to follow. This is what happened to the St. 


47 


Paul. Our present financial troubles are not due to any 
inherent cause of weakness, but are due to conditions which 
have limited our earnings in common with other carriers 
in the Western district to a figure far below that neces- 
sary to financial security. The St. Paul, having large 
maturities at. this time, with a higher ratio of funded 
debt to capitalization, and with little income other than 
that from railway operations, was the first to fail. But 
if the present inadequate margin between cost and charge 
continues, others will fail also. 


SITUATION OF THE CHICAGO, ROCK ISLAND & 
PACIFIC 


Testimony of L. C. Fritch 


Conditions confronting the Chicago, Rock Island & 
Pacific Railroad Company were submitted to the Commis- 
sion by L. C. Fritch, vice-president of that company. The 
Rock Island, testified Mr. Fritch, in order to adequately 
serve the public in the way of transportation, should spend 
over a period of five years a total sum of $115,000,000, 
made up of roadway and structure items $75,000,000 and 
equipment $40,000,000. This would be an average capital 
expenditure of approximately $23,000,000 per year. 

Some of the outstanding items which go to make up this 
five year total of $115,000,000 are detailed below: 


Ballasting oye CM re cae eee aan aches eee eee Rae $ 3.500,000 
Fadl 2 5 ee ah ee A CES ORE rus cater Oc nO 7,000,000 
BYLidgwes | 58 SG UI ere ihe ae nas Chena cere 4,000,000 
separation of /grade (crossings... 34). ue 2,000,000 
Track ‘elevation MnwCities hui co. a einee 10,000,000 
Additions and extensions of lines.../........ 24,000,000 | 
Additions of yards, sidings and other tracks.. 2,000,000 
Automatic signals and interlockers........ ~. 1,500,000 
Freight and passenger stations and other 
buildings (ale oy see cure ae Maa Cee a ea 2,500,000 
Fueland ‘water’ stations i. oo c ane e eee 2,500,000 
Shops: and ‘engine* houses le ae ee rea 1,500.000 
New: shop plants (yi) ond ones er eee ie 4,000,000 
Increased yard and terminal facilities...... 5,000,000 
Roadway, working devices, ete............... 500,000 
Real estates se ea na bline ee ea Ay 800,000 . 
Assessments for public improvements........ 1,200,000 
Stores, department structures............... 500,000 
shop machinery (and) tools as... 5) s)\ae ee ee 2,000,000 
Improvement to existing equipment.......... 3,000,000 
New “locontotives i } 98.6 eee Waa ne ae ee ee 14,000,000 
New \freightwttainicarse cg. ah ci ait ie 20,000,000 
New passenger train cars... .ss\i4.led0en woe 3,000,000 


Our budget is based on two principles, first, that the 
expenditures are required in order to furnish adequate 
transportation facilities in territories which we serve and, 
second, to produce by these improvements reductions in 
our operating expenses, certain improvements yielding as 
high as 30 per cent on the investment. While both these 
principles are of the utmost importance to the people of 
the West, it is impossible for the railroads to attract the 
capital at. the present level of rates necessary to make these 
improvements. In 1923 we spent in round figures $15,- 
000,000 in eapital improvements; in 1924, $8,500,000. 
That was the extent of our ability to get the money for 
this purpose. 

It is impossible for us to attract capital, for our return 
on the money we put into the property is less than a fair 
return on the investment. Capital will not seek these 
channels, it will go into other channels. For instance for 
the year 1923 our rate of return was 3.73 per cent. Our 
money is costing us 53 and 6 per cent. There is no in- 
centive to put money into railways if we have to pay 
04 to 6 per cent and make a return of only 3? per cent 
on money invested. If the railroads of this country could 
have a period in which they could borrow the money with 
which to make the necessary improvements, it would only 
be a course of a few years until operating expenses could 
be reduced to such an extent that reductions in rates would 
inevitably follow. But if they are not able to attract the 
money to make improvements, then the operating expenses 
will not be reduced and you will have to have a rise in 
rates. It is an economic result that is bound to follow. 


49 








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